‘How Nigeria fuels illicit financial flows through waivers, concessions to multinationals’

Country responsible for 30% of IFFs in Africa
ALREADY responsible for over 30 per cent of illicit financial flows (IFFs) in Africa, the government of Nigeria may continue to fuel outflows if arbitrary concessions, pioneer status and waivers granted to investors and multinational corporations (MNCs) are not addressed, an insight into the Thabo Mbeki Panel Report has shown.
   Indeed, the report cited rising cases of illicit flows from the continent, especially from Nigeria to multinational firms under a scheme to promote foreign direct investment in the country, while multinationals continue to encourage IFFs through transactions with their subsidiaries.
    Similarly, Nigeria was also found culpable in encouraging the routing of illicit funds internally through investments in the real estate sector, which has seen many investing in many highbrow properties with no one occupying them in a country with a deficit of over 17 million housing units.
   The report showed that IFFs are often executed through a system that lacks poor governance, weak regulatory structures, tax incentives, double taxation agreements, and financial transactions opacity.
   Furthermore, the nation’s extractive industries are key targets for IFFs, while rising trend of trade mis-pricing continues to deprive the nation of yearly earnings running to over N40 billion.
   Estimates show that Africa currently loses over 50 billion US dollars yearly to such outflows – an amount, which surpasses the development aid the continent receives.
  The Mbeki Panel Report has earlier noted in its preliminary observation that illegal financial outflows from Africa take the form of kickbacks and other forms of corruption involving civil servants; criminal activity such as drug and money trafficking and money laundering; as well as fraudulent commercial transactions such as tax evasion, the distortion of money transfer charges and over-billing (especially by transnational firms).
    Snippets from the Mbeki Panel Report reveal that Illicit Financial Flows (IFF) of funds from African countries are not unconnected with corrupt practices by state actors and agents of the multinationals, through the concession of grants, incentives and tax waivers to commercial entities.
   With the emergence of e-Commerce, stakeholders are raising concerns on the complexities in tracing transactions and recovering taxes from e-Commerce platforms.
   The Mbeki Panel Report, which has since been concluded in 2013, has on several occasions been denied presentation to the AU Heads of government forum, The Guardian gathered.
   In April 2013, presentation of the report was stepped down on the agenda because of the political sensitivity of unveiling the report in Guinea Bissau, which is a tax haven.
    In March 2014, Minister of Finance and Co-ordinating Minister of the Economy, Dr. Ngozi Nkonjo Iweala allegedly turned down the report, insisting that AU Heads of government have it first. The presentation was also declined in Morocco, on the grounds that the North African country is not an AU-member country. The next scheduled date for the presentation is January 2015.
   Stakeholders at a forum to review the Mbeki Panel Report in Lagos were unanimous that there is a need to put more pressure on relevant institutions and government officials ahead of the January 2015 Heads of Government meeting to ensure the Mbeki Panel Report on Illicit Financial Flows out of Africa is not stepped down again, that it is not passed under the carpet by governments in Africa.
  The stakeholders made the call amidst the falling prices in the international crude market, and Nigeria government’s admission of challenges with finances and introduction of austerity measures. These according to the participants have further raised the need for a deeper reflection in Nigeria and a conscious attention to alternative and sustainable financial planning based on tax and stoppage of illegal fund transfer out of the country.
   Stakeholders, including members of the organized private sector (OPS) in the country have expressed worry that while Nigeria and other countries on the continent are unrelenting in their bid to attract foreign investors and multinationals into their economies, several of the agreements are being done under the table and shrouded in secrecy.
  These agreements according to the OPS, are often hidden in the agreements are tax rebates or outright waivers that had been negotiated in the agreements.
   The stakeholders also advocated a timely review of concessions and waivers in a bid to measure the impact of such and justification for encouraging the action.
 President/Chairman of Council, Chartered Institute of Taxation of Nigeria, Dr. Mark Anthony Dike, noted that the issue of tax holidays and incentives has been grossly abused in Nigeria, adding that tax laws should be subjected to review in tune with present realities.
  “Government needs to encourage an integrated incentive scheme as well as ensure that bilateral agreements are sealed with the interests of the country prioritized”.
 “In ideal settings, effective tax system helps a country to redistribute wealth and enhance prosperity in the economy. As an alternative means of generating resources and financial development, it prevents illicit financial flows. But in places like Nigeria where the enabling legal provisions are still vague, and badly implemented”, the opposite is the case, an analyst told The Guardian.
   The analyst, who spoke on the condition of anonymity, observed that the existing tax provisions are susceptible to exploitation by agents of multinationals, while the same laws are wrongly applied against the citizenry.
  He explained: “How do you explain the situation where so-called revenue agencies of State and Local Governments use spikes to forcefully demand levies on the road or in corners of the streets? In your Lagos, that is what you see everywhere. In rural settlements across the nation, it is not unlikely to see tax collectors suddenly show up in farms to demand N2000 ‘land use tax’.
  “At harvest, the same officials will still collect another N2000 on farm produce. Before the goods get to the market, about N5, 000 is already lost by the farmer, yet the poor farmer would still pay to transport the produce to market for sale. That is exactly how government is impoverishing the people; enslaving the citizenry yet enriching foreign countries,” he lamented.
  President/Chairman of Council, CITN, Dr. Mark Anthony Dike, reiterated that the taxation law and levies operating the country, especially CAP T2, prohibit anyone including the police, to waylay anyone to collect levies on the street. In addition, Dike noted, the use of ad-hoc or unofficial tax agents is a punishable offense under the law.
  Leveraging on these observations, Tax Justice Advisor, Actionaid Nigeria, Donald Ideh, said it behooves on the authorities to review the current laws, in lieu of vague provisions that had supported illicit flow and multiple taxations on the citizenry.
  A participant at the workshop, who is also a labour leader, expressed worry that Nigerian state governments had been inviting investors rather blindly, without consideration for the plight of Nigerians who work in these companies.
  According to him, “Nigerians are often used as cheap labour and slaves in their own country because these multinationals want to maximize returns for their home country. That is one of the channels of illicit flows. But these are happening because our government will not involve stakeholders and host communities in the partnership meetings. There are problems between State governments, AGOA and multinationals today, because these agreements were never made transparent or made in the interest of Nigerians.”
  Environmental Rights activists/ Friends of the Earth Nigeria (ERA/FoEN), in commemorating the International Week of Action against Privatisation recently in Lagos, raised alarm on alleged plans by the Lagos State government to implement a water supply expansion scheme, through a partnership with International Finance Corporation (IFC) of the World Bank.
  Though the partnership looks harmless on the face value, the rights activists said, but underlining the plan is “water privatization agenda” in Lagos.
    According to them, IFC, being the commercial arm of the World Bank, had implemented similar programmes in Manila, Philippines and Nagpur in India “for profit, both of which failed.”
  Akinbode Oluwafemi of ERA/FoEN, added that the project is one of the ways State governments had played into the hands of international agencies and “plunged yet unborn generations into debt.” He stressed that water remains a right that must not be privatized under whatever circumstance.
  Though the State government has kept mum on the claims, a correspondent from the IFC, however, suggested that an agreement between Lagos government, some big corporations and the IFC exists.
  While ERA/FoEN continue to campaign against water privatization in Lagos, Oluwafemi said it was incumbent on Lagos government to fully disclose what transpired or is transpiring between the government and IFC, adding that Lagos and other States had already incurred enough debt to multinationals and would be a disservice to worsen it.
     “Nigeria has lost huge revenue to leakages particularly through illicit financial flows. Poor governance, weak regulatory structures, double taxation agreements, tax incentives, financial transactions opacity and tax havens are the enabling factors for illicit financial flows in Nigeria.
    “Nigeria’s external reserves has fallen to $35.8bn on December 9, down 19.5 per cent from $44.5bn recorded same date last year, in the same vein, the country has lost huge revenue to the drop in the global price of crude oil from $115 per barrel in June, 2014 to $68.62 in December, 2014. This portends grave consequences for development and necessitates the need to seek alternate means of financing development in the country,” members of the OPS noted.
    Participants recommended that the Nigeria Minister of Finance/Coordinating Minister of Economy, who is also the Chairperson of the AU Finance Ministers’ Forum, adopt the Mbeki Panel Report and draw up a plan of action and implementation of the report.
   In the face of dwindling oil revenue, Nigerian government should develop an alternative national development strategy that de-emphasizes reliance on oil revenue and prioritises alternate source of revenue generation including fair tax.
   The Nigerian government should develop mechanisms and policies to check and eradicate illicit financial flows Government needs to review its tax incentives policies, stop arbitrary granting of incentives and waivers that undermine the tax base of the country as a sustainable means of resource generation.
    As the 2015 general elections draw closer, all those seeking public office should provide clear articulation on the issues of resource mobilisation for financing development besides the rent from oil as well as actions for dealing with the scourge of illicit financial flow out of the country.
   There should be capacity building programmes for officials of regulatory agencies on illicit financial flows and law enforcement agencies and other institutions relevant to stemming the trend of illicit financial flow
    Civil society, the media and other stakeholders should build alliances across the African continent to pressurize regional and continental economic and political institutions towards taking common actions to end illicit financial flow out of the continent. This is in recognition of the international dynamics of the phenomenon.